DBRS Confirms AllBanc Split Corp. Class B Preferred Shares at Pfd-2 (low)

DBRS has today confirmed the rating of the Class B Preferred Shares (the Class B Preferred Shares) issued by AllBanc Split Corp. (the Company) at Pfd-2 (low). The Class B Preferred Shares were issued in March 2008 following a reorganization of the Company.

The net proceeds of the Company’s initial offering and reorganization were invested in a portfolio of common shares of the five biggest Canadian banks (the Portfolio), which was initially equally weighted among the five banks and is not actively traded. As of February 16, 2012, the Portfolio’s composition is: Bank of Montreal (22.4%), Canadian Imperial Bank of Commerce (20.3%), The Toronto-Dominion Bank (20.0%), Bank of Nova Scotia (19.0%), and Royal Bank of Canada (18.2%) (remaining 0.1% in other net assets).

Dividends received on the Portfolio are used to pay a quarterly fixed cumulative preferential distribution of $0.3344 per Class B Preferred Share, yielding approximately 5.0% annually on the initial issue price of $26.75. Based on the current dividend yields on the underlying banks, the dividend coverage is approximately 1.69 times, so the dividends received on the Portfolio fully cover the Class B Preferred Share distributions. All excess dividend income after Class B Preferred Share distributions and other fees and expenses have been paid will go to the Class A Capital Shares.

Since the rating was last confirmed by DBRS in March 2011, the net asset value of the Company has remained fairly stable, fluctuating between $57 and $64. The current downside protection (as of February 16, 2012) is approximately 56.6%.

The confirmation of the Pfd-2 (low) rating of the Class B Preferred Shares is based primarily on the downside protection and dividend coverage available, as well as on the strong credit quality and consistency of dividend distributions of the Portfolio holdings.

The main constraints to the rating are the following:

(1) The downside protection provided to holders of the Class B Preferred Shares is dependent on the value of the shares in the Portfolio.

(2) Volatility of price and changes in the dividend policies of the Canadian banks may result in significant reductions in downside protection from time to time.

(3) The Portfolio is entirely concentrated in the Canadian financial services industry.

The Class B Preferred Shares will be redeemed by the Company on March 8, 2013.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Split Share Companies and Trusts, which can be found on our website under Methodologies.